IASB Update July 2017

Insurance Contracts (Agenda Paper 2)

On 18 July 2017, the Board received an update on the activities targeted at investors and analysts on supporting the implementation of IFRS 17 Insurance Contracts. The update included information about investor reactions to IFRS 17 from discussions conducted from mid-May to the beginning of July 2017. 

Next steps

The Board will continue to monitor its activities on supporting the implementation of IFRS 17 Insurance Contracts.

Implementation and maintenance of IFRS Standards

The Board met on 18 July 2017 to discuss implementation and maintenance projects.

IFRIC Update (Agenda Paper 12)

The Board received an update on the June 2017 meeting of the IFRS Interpretations Committee (Committee). Details of this meeting were published in the IFRIC^® Update.

Amendments to IAS 12—Income tax consequences of payments on financial instruments classified as equity (Agenda Paper 12A)

The Board discussed feedback on the proposed amendments to IAS 12 Income Taxes set out in the Exposure Draft Annual Improvements to IFRS Standards 2015–2017 Cycle. The amendments would clarify that the requirements in paragraph 52B of IAS 12 apply to all income tax consequences of dividends, and not only to the circumstances described in paragraph 52A of IAS 12.

The Board tentatively decided:

1. to finalise the proposed amendments with no substantive changes; and
2. to require an entity to apply the amendments to income tax consequences of dividends recognised on or after the beginning of the earliest reporting period presented.

All 12 Board members agreed with these decisions.

Next Steps

The Board will consider the effective date and due process steps at a future meeting.

Amendments to IAS 23—Borrowing costs on completed qualifying assets (Agenda Paper 12B)

The Board discussed the Committee's recommendations on the proposed amendments to IAS 23 Borrowing Costs set out in the Exposure Draft Annual Improvements to IFRS Standards 2015–2017 Cycle. The amendments would clarify that when a qualifying asset is ready for its intended use or sale, an entity treats any outstanding borrowing made specifically to obtain that qualifying asset as part of general borrowings.

The Board tentatively decided:

1. to finalise the proposed amendments with no substantive changes; and
2. to clarify that an entity also includes funds borrowed specifically to obtain an asset other than a qualifying asset as part of its general borrowings.

All 12 Board members agreed with these decisions.

Next Steps

The Board will consider the effective date and due process steps at a future meeting.

Amendments to IFRIC 14—Possible effects of amendments to IFRIC 14 (Agenda Paper 12C)

The Board was informed of the possible effects of paragraph 12A of the proposed amendments to IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, particularly on defined benefit plans in the United Kingdom. The Board was not asked to make any decisions.

Next Steps

At a future meeting, the Board will:

1. receive information on possible effects of the amendments in other jurisdictions;
2. receive information on whether those effects are what the Board envisaged during the development of the amendments; and
3. consider the effective date and due process steps relating to the amendments.

Materiality Practice Statement (Agenda Paper 11)

The Board met on 18 July 2017 to discuss whether to confirm the guidance on covenants in the IFRS Practice Statement Making Materiality Judgements (Practice Statement).

Sweep issues—covenants

The Board tentatively decided:

1. to retain in the final Practice Statement the guidance about how to assess the materiality of information related to covenants (paragraphs 82–84 and Example P of the draft Practice Statement). Six of 12 Board members agreed and six disagreed with this decision. The Chairman used his additional casting vote, making the vote seven–six in favour of the decision.
2. to remove from the final Practice Statement the guidance about the impact of covenants on materiality judgements about other information (paragraphs 85–86 and Example Q of the draft Practice Statement). Seven of 12 Board members agreed and five disagreed with this decision.
3. to state in the final Practice Statement that information about a covenant is not material if the likelihood of a breach of covenant is remote. Ten of 12 Board members agreed and two disagreed with this decision.

Next Steps

The Board expects to issue the final Practice Statement later in 2017.

Prepayment Features with Negative Compensation and Modifications of Financial Liabilities (Agenda paper 3)

The Board met on 19 July 2017 to discuss the proposals in the Exposure Draft Prepayment Features with Negative Compensation (proposed amendments to IFRS 9) (the ED).

Two eligibility conditions (Agenda Paper 3A)

The ED proposed that particular financial assets with prepayment features that may result in negative compensation would be eligible to be measured at amortised cost or at fair value through other comprehensive income if two conditions are met. At this meeting the Board discussed whether to proceed with the two eligibility conditions proposed in the ED in the light of the feedback received.

Modification of financial liabilities (Agenda Paper 3B)

The Board received an update on a query received by the IFRS Interpretations Committee (Committee) about the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in derecognition. At its June 2017 meeting, the Committee decided not to finalise its tentative agenda decision and referred the matter to the Board. In this session, the Board discussed how to proceed with the issue.

Summary of staff recommendations (Agenda Paper 3C)

Agenda paper 3C set out the staff recommendations for the issues discussed in agenda papers 3A and 3B. The Board tentatively decided the following with respect to the amendments to IFRS 9:

1. confirm the first eligibility condition, and retain the explanation of its application in the Basis for Conclusions subject to some clarifications;
2. remove the second eligibility condition so that an entity would not be required to assess the fair value of the prepayment feature at initial recognition as a condition for applying the amendments;
3. align the existing exception in paragraph B4.1.12 of IFRS 9 with the amendments so that the eligibility condition in paragraph B4.1.12 (b) would accommodate reasonable negative compensation for the early termination of the contract.

All 12 Board members agreed with these decisions.

The Board also decided to highlight in the Basis for Conclusions that the Board concluded that the requirements in IFRS 9 provide an adequate basis for an entity to account for modifications and exchanges of financial liabilities and that further standard-setting is not required.

Eleven of 12 Board members agreed and one disagreed with this decision.  

Effective date and transition provision (Agenda Paper 3D)

The Board tentatively decided:

1. to set the mandatory effective date of the amendments as annual periods beginning on or after 1 January 2019 (with earlier application permitted);
2. to require retrospective application of the amendments using the relevant transition provisions in IFRS 9;
3. not to require restatement of prior periods to reflect the amendments; and
4. to require particular transition disclosures when an entity first applies the amendments.

All 12 Board members agreed with these decisions.

Due process (Agenda Paper 3E)

The Board discussed whether it had complied with the necessary due process for finalising the amendments and gave the staff permission to begin balloting.

All 12 Board members agreed to finalise the amendments without re-exposure.

None of 12 Board members indicated an intent to dissent from the issuance of the amendments to IFRS 9.

Eleven Board members agreed that they were satisfied that the due process requirements have been met and that the Board has undertaken sufficient consultation and analysis to begin the balloting process for the amendments to IFRS 9. One Board member disagreed.

Next steps

The Board expects to issue the amendments to IFRS 9 by October 2017.

Rate-regulated Activities (Agenda Paper 9)

The Board met on 19 July 2017 to develop further a possible accounting model for activities subject to ‘defined rate regulation'. The Board was not asked to make any decisions.

Developing the model—control and matching (Agenda Paper 9A)

The Board discussed the rights and obligations arising from a rate-adjustment mechanism in a regulatory agreement, which were also discussed in the May and June 2017 meetings. Such rights and obligations arise when the regulated rate in one period includes amounts related to specified activities the entity carries out in a different period. The Board considered an analysis that suggested rights or obligations created by the rate-adjustment mechanism would be assets or liabilities as the Board expects those terms to be defined in the forthcoming revised Conceptual Framework for Financial Reporting (forthcoming Conceptual Framework).

Developing the model—recognition and uncertainty (Agenda Paper 9B)

The Board considered the role of different types of uncertainty when deciding whether to recognise the rights or obligations created by the rate-adjustment mechanism as assets and liabilities. It did this in the context of the recognition criteria that it expects to include in the forthcoming Conceptual Framework.

Next Steps

The Board plans to discuss further aspects of the model at its next meeting.

Goodwill and Impairment (Agenda Paper 18)

The Board met on 19 July 2017 to consider recent feedback from the Capital Markets Advisory Committee, the Global Preparers Forum and the Accounting Standards Advisory Forum. The Board discussed the following in the light of the feedback:

1. possible relief from the mandatory annual quantitative impairment testing of goodwill required by IAS 36 Impairment of Assets; and
2. possible improvements to disclosures in financial statements about goodwill.

The Board was not asked to make any decisions.

Next steps

The Board will continue to discuss whether it is possible:

1. to simplify and improve the application of the impairment test in IAS 36 without loss of information to users of financial statements; and
2. to improve the quality of information provided to users without imposing costs that outweigh benefits.

Work plan—projected targets as at 21 July 2017

The work plan reflecting decisions made at this meeting was updated on the IFRS Foundation website on 21 July 2017. View it here.